Why diversify your suppliers?
Supplier Diversity is key to growth!
Supplier diversity is arguably procurement’s richest source of unrealized potential and innovation.
A report by the Hackett Group revealed companies that participated in long-term supplier diversity programs generated 133% greater return on investments than typical businesses.
Beyond ROI, the research firm also discovered those organizations had lower operating costs and spent an average of 20% less on their buying operations, while employing half the number of staff in their procurement department.
Some of the world’s largest firms, such as Bank of America, Merrill Lynch, Accen
ture and Johnson & Johnson, can attest to the positive impact of supplier diversity on their businesses. In fact, most Fortune 500 companies have supplier diversity programs, and any company doing business with the U.S. Federal Government is required by law to have supplier diversity initiatives. In 2005, companies generating revenue more than $10 billion spent 7.5% of their total supplier budget with diverse suppliers. If you are reluctant to look further than the large suppliers your company traditionally relies upon, it’s time to turn your radar toward supplier diversity.
What is supplier diversity?
In a broad sense, supplier diversity is the use of diverse businesses in conjunction with your own. It is a proactive program that sources products and services from historically under-used suppliers to help sustain and progressively transform a corporation’s supply chain.
Diverse suppliers are minority-owned, LGBT-owned, women-owned, service disabled veteran-owned, and small, local businesses. These vendors are often disadvantaged for being different.
Giving diverse vendors a chance will improve their overall revenue and contribute to a stronger economy. While minority and female-owned firms represent more than 50% of the business population, these firms generate only a little more than 6% of the total revenue. Their monetary growth has stagnated despite a growing number of diverse businesses appearing in all industries.
There are more than 25 million veterans in the U.S. Veteran Owned Businesses (VOB) and Service Disabled Veteran Owned Businesses (SDVOB) associations. These groups are responsible for a significant amount of U.S. economic activity. Likewise, women-owned firms alone generated $1.4 trillion in annual revenue in 2014. These are just a few of the types of businesses typically targeted for corporate supplier diversity programs.
More than Charity
Implementing an effective supplier diversity program can be a challenge.
Many organizations are simply following governmental initiatives and complying with federal supplier requirements, rather than making good-faith attempts at diversifying their suppliers.
However, supplier diversification must go beyond being socially responsible.
It is a great way to improve the bottom line. Therefore, shifting attitudes towards supplier diversity is an important step to help your business develop innovative ideas and insights and gain access to new markets.
Vroozi’s mobile purchasing and procurement platform has a wide variety of suppliers, try it yourself for free during 30 days and find out how diverse we are!